The hard market and continued macroeconomic challenges made for a challenging 2024 for the industry. (Credit: Sergey Nivens/Shutterstock.com)
With a new year underway, it’s important to reflect on what we’ve learned in the insurance industry in 2024. The hard market confronting the insurance industry has gone on longer than expected, and this issue continues to be a problem for our agencies. Business has been challenging and, in California in particular, we are seeing many carriers refusing to quote. There’s less supply, and agents are having difficulties securing direct carriers with whom to partner. Consequently, we are having a hard time providing coverage at a reasonable price for insureds.
The hard market has clouded the insurance industry’s outlook, but opportunities are coming into focus as well. For example, we have seen a lot of growth potential in the surplus lines space for brokers exposed to different markets. We have also received more calls from insurance clients that have been dropped by their current providers. Agencies that are still willing to cover high-severity risks have the opportunity to see strong growth in their books of business as other insurers leave the market.
While tidings have been mixed in the past year, an agency that takes a proactive approach to growth and confronting the industry’s challenges head-on can experience strong performance and start the year off on the right foot. First, it’s important to examine the factors that have contributed to our current market and see where agencies can address these concerns and better prepare in 2025.
What are the challenges?
Since the pandemic, macroeconomic factors have played a significant role in the insurance industry. Supply chain issues continue to be a problem. For our clients, we have seen chip shortages that have served as significant setbacks to operations. These shortages have led to more claims and consequently an increase in insurance costs.
Insure-to-value also remains a massive challenge as high material and labor costs persist. Clients experiencing losses face long wait times to secure parts, and those parts have been more expensive than in years past. Replacement costs related to building and home materials and labor have risen. In fact, a few years ago we may have estimated coverage at $200 per square foot, but now we are seeing costs in the range of $250 to $300. In some cases, the costs involved have reached or exceeded $350 per square foot.
Lastly, social inflation is a continuing problem, particularly in our home region of California. This is an aggressively litigious environment, and the costs are hitting insurers in a significant way. We have had to raise rates to offset these costs, challenging our insureds to bear those costs while trying to maintain their own margins.
How can we address these challenges?
Social inflation, insure-to-value and supply chain shortages are major issues for independent agencies to manage. However, there are steps we can take to reduce the burden on clients, improve client relationships and find opportunities for growth. Here are a few steps to consider:
Keep your clients in the loop
It’s our job as trusted partners to keep clients informed of evolving market realities and their related costs. Our clients constantly hear about how insurance rates are rising, but rather than hearing this from the news, we should be their source. Agents should proactively reach out to their clients to inform them of any potential changes to their insurance policy due to rising prices and consider sending over educational materials. Those materials might even include industry trade articles explaining the marketplace, so insureds can take their own time to understand their rising rates. And if a client is upset after hearing the news, it’s important to stay empathetic and reassure clients we are working to find better solutions to provide long-term benefits.
Focus on education
Social inflation is a problem, but strong client education can help reduce the chance of a loss. Educate insureds and offer comprehensive risk mitigation tactics and practices. For example, if your client is struggling with cyber exposures, offer counsel on how to prevent cyber risks, such as implementing multi-factor authentication, requiring employees to verify invoices before payment and more. For clients that haven’t suffered a loss, share examples of what may happen in the event of a loss. Learning about the consequences of a loss will emphasize safety as well as developing a preemptive risk mitigation strategy. These practices will help reduce exposures and position clients to avoid potential losses.
Increase touchpoints
More frequent touchpoints, including in-person visits and virtual meetings can reduce the chances of miscommunication between agents and insureds. On the insure to value front, agents should regularly be checking in with their clients to ensure their coverage meets the current reality of their risk. We have seen clients add new property or inventory, not realizing these new assets or real property need to be added to their coverage. Regular communication will help ensure agents are aware of any changes to operations for insureds.
With these steps, agencies can improve customer satisfaction and help ensure customers don’t experience sticker shock from rising rates.
Looking ahead
We expect a different market this year. Our industry is working with the insurance commission to bring rates in line with market realities. We will likely see premiums rise, but it will not be as significant as it has been in the past. We should have more companies able to offer quotes, and this increase in capacity will help normalize rates in the industry to help us secure better policies for current and prospective clients.
Artificial intelligence (AI) also will play a greater role in the industry next year. If an agency has not already implemented AI solutions, we would recommend doing so now. AI solutions can help streamline processes such as billing, customer service and more, and help agencies find different carriers to get quotes quickly and easily. This could be a major efficiency booster in the insurance industry and lead to more new business opportunities.
Lastly, we recommend agencies re-examine their clients’ insurance portfolios to ensure they have the right policies in place. Look for gaps, re-evaluate limits and see if you can offer coverage to meet new or overlooked needs to mitigate risk. This proactive approach will demonstrate to clients your agency cares and is working to protect their business.
The hard market and continued macroeconomic challenges made for a challenging 2024 for the industry. This year might serve as a great rebound year for insurance, provided our businesses take a proactive approach to client communication and education while also taking an aggressive stance on implementing new technology and solutions to protect our clients and improve efficiency.
Opinions are the author's own.
Sy Nilakout is commercial lines sales director at All Solutions Insurance, one of the largest independently owned insurance agencies in California placing over $5 million in annual premiums. He can be reached at sy@allsolins.com or (951) 247-2003.
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